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January 1, 2008updated 04 Apr 2017 3:59pm

HNW assets only a $24tr pool

The true size of the global private banking market is probably only two-thirds the volume claimed by widely accepted estimates of high net worth assets, giving the big private banks a much higher penetration rate than generally appreciated, according to new research. These much higher estimates of the private banking market have been historically based on the total wealth holdings of high net worth individuals, which are not in line with the type of assets that banks actually manage, contends new analysis by wealth consultancy Scorpio Partnership.

By Verdict Staff

The ‘true’ size of the global private banking market is probably only two-thirds the volume claimed by widely accepted estimates of high net worth assets, giving the big private banks a much higher penetration rate than generally appreciated, according to new research.

These much higher estimates of the private banking market have been historically based on the total wealth holdings of high net worth individuals, which are not in line with the type of assets that banks actually manage, contends new analysis by wealth consultancy Scorpio Partnership.

The higher estimates – including the $37.2 trillion of global HNW wealth in 2006 calculated by the widely followed Merrill Lynch/Capgemini World Wealth Report – are actually calculations of market opportunity and so are “misleading”, Scorpio asserts. In its view, real market share is a reflection of the distribution of moneys between the competing private banks.

Scorpio thinks that in reality the wealth industry currently collectively manages about $16 trillion in private client assets, a figure that should grow to $32.8 trillion by 2010. Total HNW assets theoretically available to the global wealth industry are actually around $24.4 trillion – meaning that private banking has a true penetration rate of about 65 percent of the actual potential.

This is because nearly $13 trillion of total HNW assets cannot be managed by private banks, Scorpio calculates. The typical HNW will allocate only a portion of total wealth with the industry while another portion, often much larger, is invested in a broad range of liquid and illiquid opportunities including property, private equity and even collectables.

Based on Scorpio research, the world’s top ten private banks actually account for 28 percent or $6.9 trillion of assets under management that realistically fall within the scope of the private banking industry.

“The market is less segmented than it was traditionally thought,” Scorpio analyst Ted Wilson says. This means that private banks can be more realistic in their growth objectives and focus on achieving solid growth, based on real market estimates.

However, the much smaller estimate for ‘private bankable’ client assets is not necessarily bad news for the wealth industry. Private banks are now able to see more clearly how much money they manage relative to their competitors, Scorpio claims. They can also see how much more money is not actually being managed at all by the industry at large.

“The industry is still typically at best a wealth preserver in the eyes of the client, rather than a wealth creator,” Scorpio concludes.

If the consultancy’s data is realistic, then UBS and Merrill Lynch – the market leaders with $1.6 trillion of global assets under management apiece – actually have market shares of 10 percent each. Hitherto, UBS has usually claimed a market share of between 3 and 3.5 percent, in what is seen as illustrating the highly fragmented state of the global private banking industry.

 

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$100tr pot

However, other new data based on more conventional approaches claims that the overall size of the global wealth market has hit nearly $100 trillion. The Boston Consulting Group found global wealth grew by 7.5 percent to reach $97.9 trillion last year, the fifth consecutive year of expansion.

The data used by Boston Consulting Group, unlike the World Wealth Report, includes mass affluent individuals as well as the traditional HNW with liquid assets of more than $1 million.

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